Some Aspects of Article 1265

SOME ASPECTS OF ARTICLE 1265
by Donald J. Johnston*
P. N. Thorsteinsson**
The restrictions imposed by Article 1265 upon consorts married and domiciled in the Province of Quebec is a recognized rule of public order expressed
in unamibiguous terms in the body of the Article itself. Whether or not a
transfer of property by way of gift between a husband and wife who are separate
as to property by virtue of the law of their non-Quebec matrimonial domicile
is valid when the consorts have moved their domicile to this province remains
a moot question. It is surprising that this particular point of law, which is of
ever increasing importance, has long been a source of dispute among Quebec
authors and diversity of opinion in Quebec courts. A definitive opinion has
yet to be rendered by the tribunals.
The Articles of the Civil Code bearing upon the question are the following:
ARTiCLE 1265
"After marriage the marriage covenants contained in the contract cannot be altered,
(even by the donation of usufruct, which is abolished), nor can the consorts in any other
manner confer benefits inter vivos upon each other except in conformity with the provisions
of the law, under which a husband may, subject to certain conditions and restrictions, insure
his life for his wife and children."
6, PARAGRAPH 4
"An inhabitant of lower Canada, so long as he retains his domicile therein, is governed,
even when absent, by its laws respecting the status and capacity of persons; but these laws do
not apply to persons domiciled out of lower Canada, who as to their status and capacity,
remain subject to the laws of their country."
ARTICLE
ARTicLE 8
"Deeds are construed according to the laws of the country where they were passed, unless
there is some law to the contrary, or the parties have agreed otherwise, or by the nature of
the Deed or from other circumstances, it appears that the intention of the parties was to be
governed by the law of another place; in any of which cases effect is given to such law or such
intention expressed or presumed."
In its simplest terms the question to be resolved is whether Article 1265 C.C.
is to be regarded as a law relating to capacity and therefore subject to the
provisions of Article 6, Paragraph 4, or a law relating to matrimonial regime,
which, partaking of contract in nature, is governed by the provisions of Article
8. If the former view is adopted then consorts who move their domicile to
this province would fall ipso facto under the prohibition of Article 1265 C.C.
On the other hand, if the latter view is to prevail, then consorts whose matrimonial domicile is outside the Province of Quebec, would not become subject
to the prohibition of Article 1265 C.C. upon establishing their domicile in
*Of the Bar of Montreal.
**Of the Bar of Montreal.
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Quebec. A brief review of authors and relevant jurisprudence reveals an
absence of agreement as to which is the correct interpretation.
Lafleur,' writing in the latter half of the nineteenth century, exhaustively
examined the issue. He illustrated that the old French law considered restrictions such as Article 1265 as forming part of the Statut reel, i.e., they were
subject to the law of the situs of the property. Therefore the validity of a
gift of immoveable property depended upon the lex rei sitae, and no regard was
had to the domicile of the consorts. At the same time, since moveable property
attached to the person, the law of the domicile determined the validity of a
gift of moveable property.2 Lafleur added that the then-modern French authors
regarded such prohibitions as restrictions relating to the capacity of the consorts
to contract and as such depended upon the law governing their status and
capacity, i.e., domicile or nationality, without regard to the situs of the
property. A change of domicile, according to Lafleur, releases a person from
the laws of his old domicile and subjects him to those of his new domicile.
Therefore Article 1265 C.C., a restriction of capacity, applies to all consorts
domiciled in the Province of Quebec.
Lafleur criticized the decision rendered in the case of Eddy v. Eddy.3 In that
case a couple who had been married in Vermont subsequently established
their domicile in Quebec. The husband, while purporting to act under the
law of Vermont, conferred benefits upon his wife in apparent violation of
Article 1265 C.C. The court held that the question of status and capacity of
consorts is determined by reference to the law of their matrimonial domicile
and that Article 1265 C.C. did not have application. The benefits conferred
were therefore held to be valid. Lafleur's comment on this decision was that
it was not well-founded either on principle or on authority.
It is a settled rule of private international law, that property rights arising
from the act of marriage must at all times be determined by the law of the
matrimonial domicile. In the absence of marriage covenants determining
property rights, the law of the matrimonial domicile is deemed to have been
adopted by the consorts. This undisputed doctrine is based on the assumption
of a tacit contract between the consorts, and consequently is governed in the
Province of Quebec by the provisions of Article 8 C.C.
Lafleur's writing was followed in the early part of the twentieth century
by a thesis of Loranger. 4 This scholarly work was devoted in large measure to
an historical analysis of the problem posed by Article 1265, and the conclusions
'Conflict of Laws, page 169 et se.
Marler, Law of Real Property, page 203, has been the only notable advocate of this doctrine in
Quebec. The doctrine seems to have been applied in a case involving the application of Article 1265
C.C. which arose in Ontario, Landry v. Lacbapdle, 1937 2 D.L.R. 504.
34 R. dej. 78.
4
The relevant part of this thesis was reproduced in 5 R.L.n.s. page 145 in an excerpt entitled
L'Incapaciti Legale des Epoux Prononcee h l'Etranger, rera-t-dlereconnue parnos Lois?
No. 2]
ASPECTS OF 1265
of Loranger are directly opposed to those of his predecessor, Lafleur. With
regard to the incapacity of consorts arising from their matrimonial status,
Loranger observed:
"L'incapacitE des 6poux commence avec le mariage et finit avec lui. C'est une cons6qucnce naturelle du mariage qu'il existe entre les Epoux certaines incapacit&s quc I'on pcur
considrer comme accessoires du mariage, et comme rels doivent &rc regis par la loi du lieu du
mariage, comme Ic contrat principal lui-meme."'
Despite the scholastic merit found in Loranger's thesis, his interpretation
of the text of the Civil Code is open to question. Some subsequent writers
have argued that Loranger placed a peculiar and unnatural interpretation upon
the word "domicile" as it appears in Article 6 of the Civil Code: in his view
the word domicile meant the following:
"II ne s'agit pas, croyons-nous, dans cet article, du domicile r&l que les Epoux acquiarent
apris Ic mariage, ni du domicile quc les 6poux peuvent choisir pour la pcrptration d'un acre
post&ricure au mariage, mais tout simplement quc les ;poux avaient an moment du mariage,
c'est-i-dire du domicile matrimonial.' '4b
It is difficult to find support for this view in the text of the article itself.
By the words "so long as he retains his domicile therein," the article indicates
that the domicile referred to is not immutable and consequently it cannot
refer to matrimonial domicile. This moreover is in complete accord with the
accepted doctrine of private international law referred to above.
Billette5 adopts the position taken by Lafleur:
"La loi qui prohibe lesdons entre Epoux (Articles 779 and 1265) est une loi relative i ]a
capacitY, qu'elle qu'ait &E la conception qu'auraient pu en avoir les anciens auteurs et arres,
dans un &at social A facture diff&ente du n6tre. L'article 770 cit au chapitre de la capacit6,
et par Ic jeu combinE des articles 759, 985 et. 770 et 1265, ilcstimpossible d'exclure de cette
notion de capacitE, les dons entre 6poux, qui, sous cet angle, sont considrs comme Ics contrats
cn g~n&ral...
MalgrE un arr&t de notre tribunaux (Eddy v. Eddy), il nous semble bien que Ic mariage ne
dtermine que Ic r~gime l6gal des biens des 6poux, et non Iur capacitC future, ne d'pcndant pas
de cc r6gime ligal et relativement A des choses futures. Cc rgime lgal rsulte d un contrat
tacite soumettant les parties i lcur loi. Mais leur capacitE rsultant de divers domiciles acquis
plus tard, n'cst et ne peut Eire envisagie dans cc contrat."
Johnson 6 differed from Billette and Lafleur and subscribed to the Loranger
school of thought. Despite indications in the jurisprudence with which
Johnson was confronted at the time he wrote, he founded his opinion on a
decision rendered in the case of Laviolette v. Martin,7 which he maintained
properly represented the law of Quebec. The matrimonial domicile of the
consorts in that case was Quebec, and they subsequently moved their domicile
to the State of New York. The wife endeavoured to sell immoveable property
situated in Quebec without the authorization of her husband, during the time
when the parties were domiciled in New York. The court of first instance
held that the wife did not need the authorization of her husband since the
law of the country where the consorts were domiciled at the time of the
"*Ibid p. 159.
4
blid p. 161.
iTraitc de Droit Civil Canadien (Donations et Testaments) Volume 1, No. 295.
6C=flict of Laws, Volume 1, page 419, etseq.
711 L.C.R. 254.
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transaction did not require such authorization. The court of appeal, however,
unanimously reversed this judgment holding that a change of domicile did not
free the wife of the incapacity created by the law of Quebec, the matrimonial
domicile. The ratio of the decision would therefore appear to be that the
incapacity resulting from the law of the matrimonial domicile follows the
consorts into their new domicile. Although this case did not deal directly
with Article 1265, it supports the view that Loranger and Johnson hold with
regard to that article, that the capacity or incapacity as the case may be arising
from the act of matrimony is fixed immutably by the law of the matrimonial
domicle.
Faribault 8 adheres to the Johnsonian argument and states:
"Lorsque I r6gime matrimonial des 6poux est r~gi par une loi 6rangare qui ne ]cur d6fend
pas de s'avantager durant leur mariage, ce qui est Ic cas dans presque tous les pays dc droit
anglais, ]a prohibition de larticle 1265 ne peut -tre invoqu~e meme si ces &rangers viennent
par la suite rasider dans notre province.'"
This is supported by the opinion of Trudel in Volume I of the same series
where he says:
"Aussi la capacit6 des 6poux de se faire des donations est ragl)c pour tout Ic temps de leur
mariage par la loi de leur domicile matrimonial . .."
The latter statement is in fact more explicit than the former, because the
word "resider" does not necessarily imply a change of domicile. It is clear
that within the terms of Article 6, paragraph 4, a change in residence has no
effect whatsoever on the status and capacity of a person.
The authors reviewed briefly above constitute the bulk of written authority
on the subject. Recently, however, Professor Paul Cr~peau has carefully
analysed both the juristic and judicial opinions expressed on the subject and
has differed from the views expressed by Loranger and Johnson.' 0 After tracing
the conflicting views of the authors and jurisprudence Cr~peau concludes in
favour of the doctrine stated by Lafleur. He convincingly attacks Loranger's
thesis when he says:
". - Ic rapprochement fait par Loranger entre P'&at des 6poux et leur ragime de biens est
inadmissible. Analyser lP&at des 6poux comme un statut contractuel me paralt erron&. II me
semble plus juridique de suivre Lafleur et d'admettre que lemot "tat" contenu au 4amc
paragraphe de I'article 6, comprend, non pas uniquement 1'&at des personnes en cant qu'individus, mais aussi en tant que membres d'une socifti familial."
-
For Cr~peau, Article 1265 must be characterized as a question of capacity,
and as such, it is brought within the application of Article 6, paragraph 4,
which in turn must be read in its literal sense.
From this cursory examination of Quebec authors, it is obvious that the
issue is far from being resolved. As will be seen in the pages that follow, the
judicial decisions on point serve only to confuse and not to clarify the question.
8Traitid DroitCivil d Quebec, Vol. 10, page 48.
5
Traiti d DroitCiri! d Qulbec, Vol. 1, page 43.
"'-His carefully reasoned opinion is summarily set forth in a Con!irenc prononce ,l1krociationdes
Notaires dc Montrial, 24th November, 1959, entitled Le regime de capacit ou d7ncapacidtlde la femme
marice dans ledroit
internationalpriv! de la Province de Quebec.
No. 2]
ASPECTS OF 1265
Thus far two cases of some importance have been dealt with; the first being
Eddy v. Eddy, which related to the application of Article 1265, and the second
being Laviolette v. Martin, which dealt with the question of marital authorization. For the purposes of this examination only cases which have arisen under
the provisions of Article 1265 are considered. Although the legal considerations involved in similar questions of incapacity may be the same, the equitable
considerations are different. For example, the fact that marital authorization
becomes necessary for consorts who move their domicile to Quebec, does not
of itself affect them more prejudiciously than consorts married and domiciled
in this province. They are in fact doing no more than accepting the law which
applies to their neighbours. This is not true of Article 1265 which prohibits
the conferring of benefits between the consorts after the celebration of their
marriage. Before the act of marriage, Quebec consorts are given the opportunity
of providing for such benefits in their marriage contract. However, a couple
married when domiciled outside the Province of Quebec, being unaware of
this prohibition and probably not anticipating a change of domicile to this
province, are given no such opportunity and unless they come from another
community property jurisdiction, they will not have a marriage contract at
all. Consequently, Article 1265 becomes much more burdensome for them
than for their Quebec counterparts. Of course it can be argued that there is no
room in our law for such equitable considerations, but it would appear that
this equitable factor has had a strong influence on some decisions rendered by
our courts. It is for this reason that the judicial decisions arising under Article
1265 C.C. should be considered apart from other questions of capacity arising
from the matrimonial status.
Directly on point is a decision of the Superior Court in the case of Huestis
v. Fellows." The parties concerned had been married in England while domiciled
in the Province of Ontario, and they subsequently changed their domicile to
the Province of Quebec. The court determined that the capacity of consorts
to confer benefits inter vivos upon each other depended upon the law of their
matrimonial domicile, which governed them throughout their marriage.
Consequently, the prohibition of Article 1265 was held not to apply. Unfortunately, in the course of the judgment, not one authority was cited in
support of this proposition.
The following year in the case of In Re Gold Bros. ex-parte Chernin12 Rivard,
J., made the following observation:
"Ici se prisente une question de droit international priv6, touchant l'effet du domicile des
6poux quant au mariage (C.C. 63) sur leurs rapports subs~quents, apras I'&ablissement d'un
nouveau domicile 1 l'Etranger, et en particulier, sur ]a validitY, en cc cas, des avantages prohibs
par notre article 1265. Question fort int~ressante, que les tribunaux suprieures n'ont pas eu
besoin de trancher dans ]a cause d'Eddy v. Eddy.. . , mais qui n'est pas moins r~solue depuis
longtemps par ]a doctrine. C'est Ia loi du domicile des conjoints au moment de Ia donation
mobiliare qui d&ermine sa validiti et non pas Ia loidu domicile qu'ils avaient lors de leur
marage.
11(1927) 65 S.C. 137.
1(1928) 11 Canadian Bankruptcy Reports 170 at p. 185.
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[Vol. 7
The opinion expressed by the learned judge does not stand as a judicial
precedent of the Court of Appeal because this particular question was never at
issue in the case before the court and therefore the statement must be regarded
as obiter dictum.
Judges of the Superior Court have had occasion to deal with the question
twice in recent years. The decisions in point are found in the cases of Bell v.
Best-Lefebvre1 3 and Sewell v. McGown.ll
The first decision concerned a couple who had been married in Ontario and
had subsequently moved their domicile to Quebec. The defendant wife bought
an immoveable in Montreal, and part of the sale price paid had been drawn
from the joint bank account to which both she and her husband had deposited
funds. The plaintiff husband had contributed some $4,000 toward the purchase
price. Upon demand the defendant wife refused to reimburse these moneys on
the ground that they were gifts not rendered invalid by the prohibition of
Article 1265, because under the law of their matrimonial domicile such gifts
were permissible. Perrier, J., gave judgment in defendant's favour stating:
"Ce problime a donn6 lieu A une grande controverse juridique, mais I'cnscmble de ]a
jurisprudence est i l'effet que la capacit6 des 6poux est immuablement fix&e par la loi dc leur
domicile matrimonial er qu'aucun changement subsequent de leur domicile ne saurait changer
cette capacit6 acquise."
In the second case the husband by way of saisie-conservatoireendeavoured
to have himself declared the owner of property which he had previously
transferred to his wife. In order to do so he invoked the prohibition of Article
1265. The consorts had been married outside of Quebec and their matrimonial
regime was subject to the laws of Virginia. As a result, the parties were
separate as to property by the laws of Virginia where they could validly make
gifts between themselves. Batshaw, J., held that the gifts were valid, relying
on the authority of Johnson and on the decision of Perrier, J., supra. He stated:
" . . not only the matrimonial convention but also the capacity to make sales or gifts
is fixed immutably by the law of the matrimonial domicile of the consorts."
Both of the above decisions are unsatisfactory in that the learned judges
made no effort to resolve a much disputed question of law which is in need of
careful judicial reasoning. These decisions do no more than add the weight of
numbers to the position of Johnson and Loranger.
On the present state of the authorities, it is difficult to state a conclusion
with any confidence. This is indeed unfortunate, because as serious as the
problem has been in the past to persons who became involved with it, today's
high taxes and the consequent concern of taxpayers with tax and estate planning
have increased the need for resolution of the uncertainty. The problem becomes
3(Unreported) S.C.M. 304470.
"CUnreported) S.C.M. 377529.
For these cases see P. A. Cr~peau, Recueil de Documents et arrets en droit internationalprivi qulblcois,
Montr6al, 1958 Vol. 2 Vo Statut personnel.
No. 2]
ASPECTS OF 1265
one of more general application when the incidence of succession duty, estate
tax and gift tax is considered.
It is of the essence of a "good" tax in the economic sense that it apply
equally to persons in the same circumstances. Yet, as will be briefly outlined
below, the application of Article 1265 to persons now domiciled in this province
whose matrimonial domicile is not Quebec, can have the effect of imposing
severely different tax consequences on those persons than upon other Canadians
who make exactly the same kinds of gifts between spouses.
The problem is not a minor one, since there is a large number of persons
now domiciled in Quebec who were not so domiciled at the time of marriage in particular, the large number of executive transferees from other parts of
Canada and the United States who have moved to the head offices of the many
national and international companies based in the Province of Quebec.
In terms of Federal taxes, the problem has two facets - one relating to gift
tax, and the other to estate tax. Gifts of property between spouses constitute
an obvious means of reducing the overall burden of taxes that are imposed on
income or property on a graduated scale.
The Federal income tax consequences of transfers of income-producing
property between spouses is settled by Section 21(1) of the Income Tax Act,
which taxes the income from the property in the hands of the transferor and
not the transferee. The Quebec Provincial Income Tax Act contains no such
provision, although it reproduces the other sections of the Federal Income Tax
Act that are designed to prevent income splitting by transfers of incomeproducing property.
In the realm of gift tax and estate tax, the problem concerns taxability of
the capital value of property given from one spouse to another. These gifts
are usually motivated by a desire to save estate tax (Federal) and succession
duty (Provincial) since the estate tax or duty on two estates having net taxable
value of $10,000 each is inevitably less than that chargeable on one estate
having a net taxable value of $20,000. In order to reduce the toll exacted by
the graduated rates, the taxpayer is often advised to dispose of property during
his lifetime, and the taxpayer's spouse is a frequent object of this inter vivos
bounty.
In addition to the question whether such transfers effectively remove the
subject property from the transferor's estate (assuming he survives the transfer
by the requisite number of years15) there is the problem of gift tax if the value
of the property transferred by way of gift in any one year exceeds the applicable
exemptions.
To illustrate the problem suppose in one year a husband, domiciled in Quebec
at the time, transfers property worth $10,000 as a gift to his wife. Assume
153years Federal: Estate Tax Act, s. 3(1) (c).
5 years Provincial: Quebec Succession Duty Act, s. 22(1).
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also that his gift tax exemption for the year is $8,000 and that he then survives
the gift by 6 years. Two questions arise which involve the provisions of
Article 1265 C.C.:
(a) Is gift tax exigible under the Federal Income Tax Act on the $2,000
excess over the amount of gift tax exemption in the year of transfer?
(b) Is the property transferred by way of gift to the wife subject to estate
tax and Provincial succession duty upon the death of the husband?
If the transfer was made pursuant to a valid marriage contract, Article 1265
of course has no application and in that circumstance a guide to the answers
to the questions posed can be found in two decided cases."6
But where the gift was not made pursuant to marriage contract and did
contravene Article 1265, what are the tax effects (a) where the matrimonial
domicile of the parties was Quebec, and (b) where the matrimonial domicile
of the parties was not Quebec?
In practice the Federal authorities will treat the transfer as valid if it was
otherwise legally complete but for the invalidity arising from the application
of Article 1265. This means that in the example given the gift will be taxed
on the one hand, but on the other hand the property given will not form part
of the transferring spouse's estate upon his death. This practice is applied
whether or not the matrimonial domicile of the spouses was Quebec, and of
course has the administrative merit of putting the Quebec transfer on the
same footing for Federal tax purposes as similar transfers made between spouses
in all the other provinces of Canada.
The Province of Quebec of course imposes no gift tax, but for purposes of
its Succession Duty Act, in practice the transfer will be ignored and the property
transferred will be regarded as still comprised in the estate of the transferor
upon his death. This approach proceeds from the proposition that contravention of Article 1265 makes the purported transfer void ab initio, and of no force
and effect whatever.
The Federal practice is that for-purposes of the taxing statutes gifts between
spouses validly made except for contravention of Article 1265 are to be taken
at face value, while the Quebec practice is to ignore them, since the contravention of Article 1265 is a fatal defect rendering the transfer wholly void. If the
Quebec practice is the true interpretation of the law, then the further question
arises whether Article 1265 has application to persons now domiciled in, but
whose matrimonial domicile is not, Quebec.
This discussion has only raised, and has not answered, certain questions
concerning the effect of Article 1265 C.C. as applied to a fairly substantial group
of Quebec residents, those persons whose domicile is now in the province but
who were domiciled elsewhere at the time of their marriage. The questions are:
16
Arnold Houghton v. M.N.R. (1956) 15 T.A.B.C. 246, and M.N.R. v. Royal Trust Company and
Dawes, 1950 C.T.C. 21.
No. 2]
ASPECTS OF 1265
(1) Whether, for tax purposes, a gift which contravenes the prohibition
in Article 1265 is void ab initio and is to be regarded as never having
taken place, or whether it is to be taken at face value;
(2) Whether Article 1265 applies at all to gifts made between spouses whose
matrimonial domicile is not Quebec.
The uncertainty as to the answer to the second question becomes the more
unsatisfactory in terms of tax and estate planning if contravention of Article
1265 renders a gift between spouses void. If the Article so operates, and if it
applies to all persons domiciled in Quebec regardless of matrimonial domicile,
then there exists a substantial body of taxpayers who are put under a serious
legal disadvantage in relation to their legitimate concern so to arrange their
affairs as to minimise tax however legally possible. By contrast, spouses with
a matrimonial as well as a present domicile outside Quebec are free to make
gifts to each other, and spouses with a matrimonial as well as a present domicile
in Quebec at least had the opportunity under the law to provide in their marriage contract for the making of such gifts.
The tax questions can be answered in terms of administrative practice, but
the true legal position remains uncertain. The taxing statutes can and should
be amended to treat on an equal footing all taxpayers whose taxable circumstances are the same, but until the basic questions of the effect for tax purposes
and the applicability of Article 1265 in the situations discussed above have
been settled, it is not likely that the revenue authorities of either the Government of Quebec or the Government of Canada will change their present practices
or institute any legislative changes.